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Who starts a self-managed superannuation fund and why?

Author

Listed:
  • Ron Bird

    (Finance Discipline Group, UTS Business School, University of Technology Sydney, Broadway, NSW, Australia; Waikato Management School, Hamilton, New Zealand)

  • F. Douglas Foster

    (Discipline of Finance, The University of Sydney, Sydney, NSW, Australia)

  • Jack Gray

    (Finance Discipline Group, UTS Business School, University of Technology Sydney, Broadway, NSW, Australia)

  • Adrian M Raftery

    (Deakin Business School, Deakin University, Burwood, VIC, Australia)

  • Susan Thorp

    (Discipline of Finance, The University of Sydney, Sydney, NSW, Australia)

  • Danny Yeung

    (Finance Discipline Group, UTS Business School, University of Technology Sydney, Broadway, NSW, Australia)

Abstract

Self-managed superannuation funds (SMSFs) – small retirement savings funds with four or fewer members – now manage almost one-third of retirement savings in Australia, and serve over 1 million members. The number of SMSFs has increased to more than half a million in two decades, yet little is known about the reasons people start the funds and how they operate. We use a survey of more than 500 SMSF members and 500 large superannuation fund members to analyse why SMSF members commence and manage their own fund, compared to similar people who stay with a large fund. We find that control over investments and tax minimisation are the most common reasons for starting a SMSF, while satisfaction with large funds and unwillingness to take on the administrative burden of self-management are the most common reasons for not doing so. SMSF members do not show any greater financial skills than non-members, but they do display overconfidence, a higher risk tolerance and a more trusting attitude to financial professionals. Model results show that the majority of SMSF members start their funds at the suggestion of financial professionals. We also show that those who say they are thinking about starting a SMSF are different in significant ways from the eventual SMSF members, further evidence of the influence of the advice industry.

Suggested Citation

  • Ron Bird & F. Douglas Foster & Jack Gray & Adrian M Raftery & Susan Thorp & Danny Yeung, 2018. "Who starts a self-managed superannuation fund and why?," Australian Journal of Management, Australian School of Business, vol. 43(3), pages 373-403, August.
  • Handle: RePEc:sae:ausman:v:43:y:2018:i:3:p:373-403
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    More about this item

    Keywords

    Financial literacy; pension funds; self-managed superannuation funds; SMSF choice;

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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